Mastercard Incorporated (NYSE:MA) is poised for expansion, fueled by robust consumer spending, an extended services portfolio, rising cross-border volume, and overall transaction growth. With a noteworthy 19.1% gain in the past year, surpassing the industry’s 18.5% growth, the stock exhibits resilience and remains attractive to investors. There appears to be further potential for growth.

As a leading global payment solutions company with a market cap of $395.6 billion, Mastercard offers various services supporting credit, debit, mobile, web-based, and contactless payments. The stock is deemed worthwhile to retain at this juncture, thanks to its solid prospects.

Let’s delve deeper into the analysis.

The Consensus Estimate for Mastercard’s full-year earnings in 2023 stands at $12.16 per share, indicating a 14.2% increase from the previous year. This estimate has remained steady over the past week. Projections for 2024 indicate earnings of $14.17 per share. Mastercard has consistently exceeded earnings estimates in the last four quarters, with an average beat of 3.6%.

In addition, the consensus estimate for revenues is $25 billion for 2023, reflecting a 12.4% rise from the previous year. The 2024 consensus estimate is set at $28.1 billion. The growth in Cross-Border Assessments and Transaction Processing Assessments is expected to support the top-line expansion.

Our estimates indicate a more than 27% year-over-year increase in Cross-Border Assessments. Similarly, we anticipate a 13.7% growth in Transaction Processing Assessments from the previous year. The company’s growing transactions, GDV (Gross Dollar Volume), strategic partnerships, and prudent growth strategies are anticipated to enhance Mastercard’s overall performance. Our model also predicts a more than 10% year-over-year increase in Domestic Assessments.

Mastercard’s strategic focus on expanding operations in burgeoning regions positions it favorably for sustained long-term growth. Key alliances and partnerships, such as those with Further Ventures, I&M Bank Uganda, First Atlantic Commerce, and Bidvest Bank, contribute significantly to its growth. Utilizing acquisitions to complement organic initiatives and broaden its revenue base allows the company to stay ahead in the competitive payments space.

The company consistently generates cash flow from operations, facilitating share buybacks and dividend payouts. With $7.9 billion in cash flows from operations in the first nine months of 2023, Mastercard bought back 4.8 million shares for $1.9 billion and paid out dividends worth $538 million in the third quarter alone. Last month, it approved a 16% increase in the quarterly cash dividend and added $11 billion to its share buyback fund.

Key Concerns

However, investors should monitor certain factors. Rising expenses, high rebates, and incentives may impact Mastercard’s margins. Projections indicate a 10.5% year-over-year increase in adjusted operating expenses for full-year 2023, with rebates and incentives expected to grow nearly 22% year over year.

With a forward 12-month price-to-earnings ratio of 34.4X, significantly higher than the industry average of 23.4X, Mastercard may be considered overvalued. Nonetheless, a systematic and strategic plan of action is believed to drive its long-term growth.

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